Quality sweep

In future, end-of-year information must be electronic. It must also be spotlessly clean. Simon Parsons, legislation and payroll strategy product manager, Ceridian Centrefile, reports

Many employers have received or will shortly receive a letter from the Inland Revenue specifying the 'snapshot' categorisation of employer size, with regard to compulsory e-filing, electronic payments and the incentive payments for small employers.

Compulsory e-filing also brings into play the compulsory requirement for clean data, else the e-filing return will be rejected. The new Quality Standard applies to payrolls from the 6 April 2004 and relates to the end-of-year submission for the 2004/2005 tax year.

The main changes involve:

• The recording of more employee-based personal data,
• Accurate application of National Insurance Contributions with the associated appropriate category letters, rates and earnings bands - and any associated employers contracted out numbers (ECONs) and scheme contracted out numbers (SCONs).

Temporary National Insurance numbers are to be discontinued. From 6 April 2004 the TN format NI Numbers will no longer be accepted on end-of-year returns (including paper returns).

The Inland Revenue had originally indicated that the Inland Revenue Personal Reference number (IRPR) would be introduced for 2004/05 tax year. This proposal has been withdrawn.

For the time being the IRPR must not be used on end-of-year returns and definitely not used as a National Insurance number as this will cause the rejection of the end-of-year return. The Inland Revenue has also revealed a list of valid prefix NI number letters. If the NI Number is not known then the Revenue requires employers to supply the employee's birth date and gender.

In the exceptional circumstance of a valid date of birth not being able to be traced then employers are to report a default date of 1 January 1901.

The employee's gender is also to be used by employers to validate the correct deduction of reduced rate NICs that are only available to women (NIC category letters: B, E, G, K, O or T).

Gender is also to be used to ensure that only female employees may receive Statutory Maternity Pay (males can receive Statutory Paternity Pay and Statutory Adoption Pay, and in certain circumstances females can receive SPP for both birth and adoption).

Marital status is not required to be reported as an e-filing value, but it is required to be used for validation for employees who claim the reduced rate NICs for married women and widows (NIC category letters: B, E, G, K, O or T).

One of the common existing errors in end-of-year returns is missing employers' contracted out numbers (ECONs).

For all employees that are members of a contracted out pension scheme, whether that is a salary-related (or defined benefits) scheme, or a money purchase (or defined contributions) scheme, the employer must report the appropriate ECON number on the end-of-year returns for clean data.

Unfortunately the end-of-year submission only allows a single ECON to be reported for each PAYE scheme, so where companies, business and employers have combined employees into a single PAYE scheme but multiple ECON certificates are held (and no matter what the contracting out office tells you), employers can only submit a single valid ECON number per PAYE scheme, else the employees will need to be split into two PAYE schemes with the relevant employees reported into the relevant scheme (even if they are employees who work side by side in the same department).

The Inland Revenue has released the modulus 19 checking of the ECON numbers so payroll software can indicate whether a supplied number is correct as opposed to waiting for the end-of-year return to be rejected. What the modulus 19 checking is not to do is create a ECON number which will pass the validation checks.

The ECON number is essential for validating the correct NICs categories for employees. Without one, employers cannot use the following NICs categories for their employees: D, E, F, G, H, K, L, N, O, S or V.

A missing or invalid SCON number is a common error for end-of-year returns using categories F, G, H, K, S and V for contracted out money purchase (COMP) schemes. Often employers also attempt to enter associated SCON numbers for non-COMP schemes, but SCONS are to only be reported for COMP scheme NI category letters.

Modulus 19 checks are used to validate the SCON and ECON numbers issued by the Inland Revenue and used by the employer. The checks cannot identify if any of the digits of these references are incorrect and the checking process is not to be used to amend the reference number in an attempt to identify a correct number.

Not only do you need to ensure that your payroll software or service provider is going to assist you in the statutory obligations of e-filing, but that the data validations are increased to ensure that your end-of-year returns are clean.

See our e-filing supplement with the latest issue.

KEY POINTS
- Data sent electronically to the Inland Revenue will be automatically rejected if it does not meet the new Quality Standard
- When the NI number is not known, the employer must supply employee's birth date and gender
- One of the commonest errors in end-of-year returns is missing employers contracted-out numbers